The allure of ‘no ownership

Allison Armour loves fashion, but doesn’t need to keep it in her closet.

The 24-year-old frequents privately-held chain Crossroads Trading Co, where she buys brand-name goods secondhand at a discount, then sells the items back when she wants to refresh her look.

Armour, a marketing manager for a nonprofit in Oakland, California, has picked up skirts and shirts, Oxford shoes for $30, a J.Crew trench coat for $40 and a Dooney & Bourke satchel for $150, less than half its retail price. “When I get tired of certain things, I put them aside and sell them back,” she said.

For Millennials – the roughly 77 million Americans born between about 1980 and 2000 – the allure of “no ownership” is moving beyond housing and cars.

A new industry based on sharing or renting clothing, electronics and small appliances is springing up from nothing about five years ago, posing a disruptive force to traditional retailers.

Battered by student loan debt and the Great Recession, Millennials place less emphasis on owning and more on sharing, bartering and trading to access coveted goods. These behaviors have propelled businesses such as car rental service Zipcar, taxi service Uber and home rental site Airbnb.

What Millennials do buy, and keep, is their smartphones. About 85 percent of people aged 18 to 34 own them, according to Nielsen research, and the devices are the doorway to the sharing economy.

Now these “NOwners,” as Jamie Gutfreund, chief marketing officer for Deep Focus, calls them, are propelling a new wave of privately-held companies such as children’s resale marketplaces Kidizen and Yerdle, which allow customers to swap or buy smaller-ticket items like used clothes and household goods. Deep Focus does market research on youth trends.

While their parents may have frequented thrift stores to save money, Millennials who have the income to buy new goods also see sharing and re-using as a way to promote environmental benefits such as reducing landfill waste.

“Instead of paying for something and getting rid of it with no value when you are done – swap and resale gives Millennials the ability to extend the value,” Gutfreund said. “It’s efficient and it’s green.”

Indeed, 59 percent of Crossroads shoppers said “being an environmentally friendly way to shop” was one of their favorite things about the store.

“A lot of people can’t afford the timeless brands new but they still appreciate the quality,” said Erin Wallace, director of marketing for Crossroads Trading and its sister store Fillmore & 5th, which has opened six boutiques since 2012.

Many of these new businesses are getting funding from traditional sources like individuals and private equity firms including Bain Capital Ventures but also from startup platforms such as Onevest.

“Just about every major industry is likely to experience disruption (because of the sharing economy),” said Joe Atkinson of accounting and consulting firm PwC, whose April report that found that Millennials are among the most enthusiastic about sharing and account for almost 40 percent of those who have provided something.

FLOW OF STUFF

Driven by demand and technology, membership at Kidizen is growing 40 percent to 50 percent a month. The company was founded by two mothers with retail and marketing experience who wanted to share the endless flow of “kidstuff” that arrived with parenthood.

Members post photos, blog about their families, even send notes and lollipops in shipments to the next family.

“It is a community where people have gotten to know each other,” said Dori Graff, 39, a co-founder. “That makes it sticky. People keep coming back.”

Yerdle estimates that American closets and garages contain $100 billion in unused clothes, tools and other items, which it wants consumers to acquire from the site rather than buying new.

“They are shopping with things they don’t need any more,” said co-founder Andrew Ruben, 42, who previously led sustainability efforts at U.S. discount retailer Walmart. Yerdle now has more than 300,000 members, and is growing 30 percent month over month. He said the ultimate goal is to get people “to buy 25 percent fewer new items.”

It has no inventory costs because members post a photo of an item, and keep it until someone else wants it. Ruben said about 40 percent of the items go in their first day.

The company has received $10 million in funding, including about $2.5 million from The Westly Group, which includes former eBay (EBAY.O) executives. The Menlo Park, Calif., firm focuses on making money while solving social issues by investing in everything from Good Eggs, which delivers fresh food from local producers, to Greengate Power, a wind farm in Canada.

“It’s about how do you take all these assets and get them used over and over by other people,” said Gary Dillabough, a Westly managing partner, who now sits on Yerdle’s board. And that appeals to Millennials. “They want to use things that are already in the economy.”

WORN WEAR

Some established retailers have taken note. Patagonia, already popular with Millennials because of its quality and environmental reputation, has offered free repairs since the 1970s. More recently, it launched a program encouraging customers to trade in used clothing in good condition. They are resold at its Portland, Oregon store for about half the original price.

“We found that it encourages new customers to come to our brand,” said Nellie Cohen, 32, environmental marketing manager at Patagonia. “People come to see what is on the Worn Wear rack.”

Highland Capital Partners, which has more than $2 billion under management, has invested in a number of businesses including Rent the Runway and ThredUp, an online fashion resale shop, which focus on Millennials and the shared economy, said Dan Nova, a partner. He likes Rent the Runway’s leadership and business model.

Rent the Runway, founded in 2009, allows users to rent couture for special occasions. Not yet profitable, the company, which says it’s raised $116 million and is worth $600 million, now has almost 5 million members, including celebrities and billionaires, and $1 billion in inventory. It describes its typical client as a well-educated 29-year-old female professional.

“In the age of Facebook, people don’t want to be photographed more than once or twice in the same dress,” Nova said.

(This version of the story corrects in paragraph 21 amount of funding to $2.5 million from $6 million) Reuters